2021/02/04 by ZHENGYANG JIANG, Zhengyang Jiang, Arvind Krishnamurthy +3 · 338 citations
Economics, Econometrics and Finance · #Asset (computer security) #Bond #Business #Convenience yield #Currency #Depreciation (economics) #Devaluation #Economics #Exchange rate #Finance #Financial Markets and Investment Strategies #Financial economics #Foreign-exchange reserves #Global Financial Crisis and Policies #Liberian dollar #Microeconomics #Monetary Policy and Economic Impact #Monetary economics #Reserve currency #Special drawing rights #Spot contract #Treasury #Valuation (finance) #Yield (engineering)
paper · pdf · doi:10.1111/jofi.13003
published in The Journal of Finance 76(3), 1049-1089 (Wiley)
openalex publication_date 2021/02/04 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
ABSTRACT We develop a theory that links the U.S. dollar's valuation in FX markets to the convenience yield that foreign investors derive from holding U.S. safe assets. We show that this convenience yield can be inferred from the Treasury basis, the yield gap between U.S. government and currency‐hedged foreign government bonds. Consistent with the theory, a widening of the basis coincides with an immediate appreciation and a subsequent depreciation of the dollar. Our results lend empirical support to models that impute a special role to the United States as the world's provider of safe assets and the dollar as the world's reserve currency.